Councillor Perry
invited nominations for the position of Vice-Chair of the Pensions
Committee for the duration of the Municipal Year. Accordingly, Councillor Rachel Blake was nominated
and seconded and it was:

RESOLVED

Councillor Rachel
Blake should be appointed Vice-Chair of the Pensions Committee for
the duration of the municipal year.

To note
any declarations of interest made by Members, including those
restricting Members from voting on the questions detailed in
Section 106 of the Local Government Finance Act, 1992. See attached note from
the Monitoring Officer.

Minutes:

Cllr.
Abdal Ullah made a point to note that he and other councillors had
received emails from the Friends of Earth and he
has responded to some emails but not all, but wanted to place on
record that he had received these emails.

3.

VARATION TO THE ORDER OF BUSINESS

Minutes:

The
Chair indicated that she thought it appropriate that the Order of
Business be varied:

Accordingly the Chair Moved the following motion for the
consideration of Committee Members, and it was: -

Resolved

That
the Order of Business be varied to have the presentations from
Extinction Rebellion First.

To move
item 7.4 ahead of item 3.0 on the agenda.

To aid
clarity, the minutes are presented in the order that the items
originally appeared on the agenda.

To confirm as a correct record
the minutes of the meeting of the Committee held on 13th
March, 2019.

Minutes:

Item deferred

5.

PETITIONS

To receive any petitions
relating to matters for which the Committee is
responsible.

Minutes:

Although there had
been no requests received to present petitions it was noted that
the Friends of the Earth had asked to address the
Committee regarding the importance of the Councils Pension
Funds. They wished to ensure the LBTH
has protected itself from the financial risk of climate change
through those remaining investments that it has in fossil fuel
companies (See item 8.4 Revised Investment Strategy Statement and
Investment).

The
Chair asked Mr Turner for an update on how much of the Fund’s
equity assets were directly invested in carbon related
stocks. In this context, carbon stocks meant all energy firms
(oil, gas and coal producers and distributors) plus mining
companies. Based on recent analysis, Mr Turner estimated that
around 2.4% of the Fund’s total assets (or £37m based
on latest market values) was invested in carbon stocks. It was
noted that this exposure would have reduced materially since 2017
following a reduction in the Fund’s allocation to equities
and decision to invest 30% of the equity assets in a passively
managed low carbon global equity strategy. This level of carbon
exposure was considered to be relatively low when compared to other
LGPS funds and reflected the Committees early consideration of the
importance of climate change issues to the Fund’s investment
strategy. It was anticipated that this would reduce further
in the future as the Committee was giving further consideration to
switching additional equity assets into the low carbon global
equity strategy. Mr Turner noted that this was a risk
reduction strategy given the risks of climate change to companies
and that the Fund was also investigating further how to invest in
Infrastructure, with an emphasis on Renewable Energy assets, to
help boost long-term expected returns.”

6.

SUBMISSIONS / REFERRALS FROM PENSION BOARD

To receive any
submissions/referrals from the Pensions Board

Minutes:

Report
from Pensions Board Chair John Jones was presented by Kevin Bartle
and is set out below:

The
Committee noted that:

The
Pensions Board meeting was held on Monday 17th June,
2019. All Board Members had been
present including Councillor Asma Islam who had recently been
nominated to the Board and was attending her first
meeting;

The
Board received an informative presentation from Hymans Robertson
providing an update on the 2019 Actuarial Valuation process
highlighting (i) the importance of understanding risks and having a
clear Funding Strategy statement in place; (ii) how the stabilising
employer contribution rate assists budgeting and scheme
affordability;

Tower
Hamlets response to the Pension Regulators compliance checklist was
discussed along with the importance of this from a governance
perspective. On the basis of the report presented, the Board noted
that the Fund is 75% compliant with the Pension Regulator’s
assessment criteria although it was noted that there remains a
significant number where further action is required to meet the
criteria in particular maintaining accurate member data and
providing information. The Pensions Regulator is taking an
increased interest in the LGPS in promoting effective governance
and decision making. It was noted that the Board’s view is
that an action plan is needed together with allocated
responsibilities in order to achieve full compliance with the
requirements of the checklist;

The
Board reviewed the Risk Management and Internal Controls Policy and
the updated risk register. The Board suggested improvements around
linking the register more closely to the high risk areas included
in the covering report and clearer allocation of responsibilities
between lead officers. The register had identified that there was
no formal policy or documented procedure for checks on the accuracy
of member data. It was agreed that a new policy would be drafted
and introduced to provide a framework in future. Accordingly, the
risk register would be reviewed again at the Board’s meeting
in November;

Because of the timing of meetings and the availability of
papers, it had not been possible to have a full discussion on the
Pensions Committee agenda. The Board
received an update on the Fund’s investment arrangements. It
was agreed to have another update in
due course;

Consideration of the performance of the Pensions Administration
Team had also deferred to the meeting in September. The Pensions
Regulator it was noted had identified data quality and record
keeping as a key area of performance as it impacts directly on
member benefits. The Board noted that it had previously recommended
that the report should be updated to provide more robust and
complete monitoring information for the Board and
Committee.

Finally, the importance of training and development for new
members of the Committee and Board was discussed. It was noted that
the LGPS and pension fund investment has now become increasingly
complex and higher profile. The stability of membership and an
understanding of the technical issues have become even more
important to the effective management of the LGPS in Tower Hamlets.
With this in mind it was ...
view the full minutes text for item 6.

7.

MEMBERS TRAINING ON ROLES AND RESPONSIBILITIES IN LGPS

Minutes:

The Committee received
and noted a presentation that provided an outline on the roles and
responsibilities within the LGPS.
Including the responsibilities of Pension Committee that may be
summarised as follows:

1.
ensuring that all investment activity complies with the
requirements of current regulations and best practise;

A
report providing an update on the arrangements for the preparation
of the Pension Fund Annual Report and Accounts 2018/19 in
accordance with regulations and the arrangements for the separate
audit engagement, opinion and certificate for the Fund was
presented.

The
Committee was also reminded that it acts as quasi-trustee to the
Pension Fund and as such acts in the capacity of the Administering
Authority of the Pension Fund. The Committee’s terms of
reference requires that the Annual Report and Accounts on the
activities of the Fund are presented and approved prior to their
publication. The Local Government Pension Scheme Regulations 2013,
Regulation 57 require the Pension Fund to publish its report and
accounts by 1st December following the financial year end and for
the Report to contain a number of standard items. The publication of the Pension Fund Annual Report
and Statement of Accounts also helps to keep Fund members informed,
shows good governance and also helps to demonstrate effective
management of Fund assets.

Due to
the tight deadlines relating to the production of the Pension Fund
Annual Accounts, the Annual Report was only available to be tabled
at the meeting and it was important that the Committee considers
and agrees the Annual Report so as to ensure that they are properly
audited as part of the Council’s annual statement of accounts
process. It was therefore not possible to defer this report until
the next meeting.

Accordingly, in light of this and the fact that Members clearly
need time to consider the draft report fully the Chair indicated
that

She
would like this item to be considered and discussed tonight and for
any questions and comments on the annual report should be sent to
Kevin Bartle, Interim Divisional Director of Finance Procurement
and Audit, prior to the close of business on 27th June,
2019; and

The
Interim Divisional Director of Finance Procurement be authorised to
amend the draft report before submission, after consultation with
the Chair of the Pensions Committee following consideration of
comments received by the 27th June, 2019.

RESOLVED:

(a) That any questions
and comments on the annual report should be sent to Kevin Bartle,
Interim Divisional Director of Finance Procurement and Audit, prior
to the close of business on 27th June, 2019; and

(b) To authorise the
Interim Divisional Director of Finance Procurement to amend the
draft report before submission, after consultation with the Chair
of the Pensions Committee following consideration of comments
received by the 27th June, 2019.

The Committee received
and noted a report that provided details of the performance of the
pension fund managers and the overall
performance of the Tower Hamlets Pension Fund. Whilst there are no direct financial implications
arising from this report, the long term performance of the pension
fund will impact upon pension contribution rates as set by the
Committee. The main points of the report may be summarised as
follows:

i.Investments managed under the London
Common Investment

Vehicle (LCIV) pooling arrangement

a)LCIV Global Alpha Equity Fund - Baillie
Gifford (BG GA)

Managed under the LCIV pooling arrangements, the
market value of the assets as of 31 March 2019 was £345.890m.
The portfolio outperformed the benchmark by
delivering a return of 12.39% compared to a benchmark return of
9.64% over the quarter while underperforming against the one-year
benchmark return by -1.69%. However, it outperformed the three-year
benchmark return by 3.73% per annum and the 5 year benchmark return
by 2.41% per annum.

Over the 12-month period to 31 March 2019 the top
contributors to performance in the portfolio were Amazon
Corporation, Anthem Inc and Advanced Micro Devices. Over the same
period the top detractors to performance were Prudential, Ryanair,
Zillow and Microsoft.

b)LCIV Diversified Growth Fund - Baillie
Gifford (BG - DGF)

Market value of assets as at 31 March 2019 was
£136.822m. Quarter ending return of this portfolio was 6.14%
with relative outperformance of 5.09% above benchmark return of
1.04%. This portfolio underperformed the one-year
benchmark by -3.78%, but outperformed the three year benchmark
return by 1.15% per annum and by 0.61% per annum over 5
years. The portfolio invests in a range of asset
classes.

c)LCIV Absolute Return Fund – Ruffer
Ltd (Ruffer LLP)

The value of assets under management as of 31 March
2019 was £130.574m. The portfolio outperformed
the benchmark by delivering a return of 3.15% compared to benchmark
return of 1.04% over the quarter while underperforming against
benchmark on the one year by posting a return of -0.55% against a
benchmark return of 4.06%. Over 3 years the portfolio outperformed
its benchmark by posting a positive return of 3.71% per annum and
posting 3.72% per annum, slightly ahead the benchmark by 0.11% per
annum for over 5 years period.

d)LCIV Multi Asset Credit - MAC Fund

Tower Hamlets Pension Fund transferred £90m on
29 May 2018 to London CIV to invest in LCIV (CQS) MAC which was
launched 31 May 2018. The portfolio had a market value of
£91.8m at 31 March 2019.This portfolio delivered a positive
return of 2.65% over the period and
outperformed its benchmark by 1.29%.

ii.Goldman Sachs Asset Management
(GSAM)

The portfolio had a market value of £52.542m at 31 March
2019. The portfolio outperformed the benchmark in the reporting
period by posting returns of 2.66% against a benchmark return of
1.29% and underperformed the benchmark for one year to reporting
period considerably by -4.93%.

To receive a report outlining the Market Outlook
Update by the Fund Independent Adviser – To
follow.

Minutes:

Colin Robertson presented his report to the
Committee.The main points of the discussion
maybe outlined as follows:

"Financial markets performed strongly in Q1 2019 as central
banks adopted a more accommodative
monetary policy. Moderate economic growth might be expected but
with policy already so simulative, policymakers have few tools at
their disposal when something goes awry. Politics could prove
problematic for financial markets. Equity market valuations are not
unduly demanding but earnings forecasts might well be too
optimistic.

The
fund has a very low exposure to bonds which might be considered to
match the liabilities to some extent but this would not appear to
be the ideal time to increase the fund's exposure as bond yields
are extraordinarily low at present. Serious consideration should be
given to investment in infrastructure now that the London CIV has a
plausible infrastructure product on offer. The desired and
achievable level of renewables exposure within the fund's
infrastructure investment was discussed. Rebalancing the fund's
equity exposure back to benchmark was raised.

The
differing opportunity sets for the various absolute return / DGF
funds was noted."

The Chair informed the
Committee that a revised Investment Strategy is fundamental to the
work of the Council and that she was grateful for the work already
undertaken on this issue by the Committee over recent
years. She made it clear that it was
important that going forward the current Membership must have a
clear understanding of all relevant issues and consider for itself
how this should impact the Fund’s investment strategy.

In addition, (i) as
the report had not been published within the required 5 clear days
of the meeting date and having sought advice from the officers, it
was clear that it is not essential that the Strategy is reviewed at
the meeting; (ii) the Committee needed to hear for itself the
points made by Friends of the Earth regarding the financial risk of
climate change and take those points into consideration before
approving.

Accordingly, the Chair
recommended to the Committee that a decision is deferred on the
Investment Strategy until a future meeting and that in the
intervening period Members of the Committee will have an adequate
opportunity to contribute to the Strategy and to fully understand
its implications prior to its approval.

The
Committee received a report that covered the performance during the
current and previous financial years.
This included the activity levels and the performance levels
against agreed service standards. The
main points of the report considered may be summarised as
follows:

The Committee noted that:

·In the fourth quarter of 2018/19, the Pensions team
had completed 88.68% of its workload in line with the services
standards measured by the performance indicators;

·There are currently 180 cases classified as
‘Undecided Leavers’ i.e. members that have left
employment or opted out of the pension scheme and have yet to be
processed as refunds, deferred beneficiaries, pensioners of
transfers out;

·Possible incoming transfer currently being processed
– 158. In these cases we are either waiting for a response
from the transferring scheme, waiting for a response from the
member, or waiting for payment of the transfer;

·On 10 April 2019 HM Treasury had launched a
consultation until 3rd July 2019 on draft regulations,
guidance and Directions to implement the cap on public sector exit
payments;

·The impact of the regulations on LGPS members if the
cap is exceeded and the exit payment includes a pension strain cost
is still unclear, but it is understood that the policy intent is
for the member’s pension to be reduced to the extent that the
exit payment cap is not breached, with the member having the option
of paying extra to ‘buy-out’ some or all of the
reduction. Amendments to the LGPS
regulations would be required to facilitate this change. Guidance
from the Government Actuary on calculating the pension reduction
and operating the buy-out process would also be
required;

The
Committee received a report that provided an update and background
information into the Pooling arrangements and also London CIV
Pool. The main points of the report
considered may be summarised as follows:

The Committee noted that:

·The UK’s 89 Local Government Pension Schemes
(LGPS) have finalised their asset-pooling plans by having eight
regulated fund management entities to run almost all of the LGPS
assets, leaving individual funds to decide asset allocation and
focus on other areas of pension scheme management.

·The London CIV of which the Fund is a member sought
agreement from shareholders to extend the scope of the
Company’s business activities, in order to reflect the
broader understanding of pooling. It has now proposed to define the
purpose of the Company as an FCA company rather than the FCA
authorised operator of an ACS. This would mean that the scope of
the Company’s business would be consistent with the evolving
expectations of a LGPS pooling company and allow it to be
sufficiently flexible to add value and meet pooling objectives. The
change discussed at the LCIV Shareholder Committee in December 2018
prior to approval at the General meeting of Shareholders on 31
January 2019 requires shareholders’ approval in writing and
the LCIV sent the proposed change letter to all
shareholders.

To receive a report that outlines the Local
Government Pension Scheme (LGPS)

Minutes:

The Committee received a report that provided an
update on general developments in Local Government Pensions Scheme
arena and also the Scheme Advisory Board’s key projects
relating to the governance and administration of the Local
Government Pension Scheme; specifically national initiatives that
deal with inconsistencies across the Scheme for academies, the
risks associated with Third-Tier employers and the conflicting
interests at local authority employers who undertake the
administering authority function.

The Committee noted
the report which covered the following matters:

1) LGPS
Employer Cost Cap;

2) New Fair
Deal in the LGPS;

3)
Separation Project / Good governance in the LGPS;

4)
Academies Pension Cost;

5) GMP
Equalisation and the LGPS;

6) Employer
Exit Credits;

7) Cost
Transparency;

8) Exit
Payment Caps; and

9) Changes
to the Valuation Cycle and Management of Employer Risk.

As a result of
discussions on the report the Chair moved and it was RESOLVED
to

1. Note the
contents of the report.

9.

DATE OF FUTURE TRAINING/SEMINAR/CONFERENCE EVENTS

To receive details
of the date of future
training/seminar/conference events

Minutes:

The
Committee that they will shortly be receiving a list of future
training; seminar and conferences. Members were asked to inform
Miriam Adams, the

Interim
Pensions & Investment Manager if they wish to attend any of the
training events.

10.

DATE OF FUTURE MEETINGS

To note the dates and times of future
Committee meetings.

Minutes:

The Committee
noted the dates of future meetings for the current Municipal
Year.